Champions Oncology, Inc.
Q1 2017 Earnings Call Transcript

Published: 30 Nov 2016

[Joel Ackerman:]

I’m Joel Ackeran, the CEO of Champions Oncology. I’m joined today by David Miller our vice president of finance and administration. Thank you for joining us for our quarterly earnings call. Before I start, I will remind you that we will make forward-looking statements during the call and actual results could differ materially from what is described in those statements. Additional information on factors that could cause results to differ is available in our Forms 10Q and 10K. Reconciliation of non-GAAP financial measure that may be discussed on the call to GAAP financial measures is available in the earnings release. It’s been an eventful quarter, so a lot to talk about. My comments today will be organized around the following topics

[David Miller:]

Staring with bookings, because as we’ve discussed on prior calls, bookings is or single most important indicator for evaluating our future revenue growth. Q2 was another strong books total for Champions. As Joel mentioned earlier, our second quarter financial results were not influenced by any one-time or significant event. The same held true for our second quarter bookings, with our largest booking contributing only 10% to our quarterly total, while we’re still strive to have, and will, sign large scale studies that will contribute significantly to our quarterly bookings and comprise a larger percentage of a future quarterly total. The compensation of [inaudible] comprised of a well-diversified customer base and study sizes, we’ve [inaudible] to believe that our bookings have reached a new baseline and will continue to growth from these levels. We signed more than 40 new studies and [inaudible] with over 30 different customers. Additionally, we continued to sign studies and new product lines which we discussed before, AML and immuno-oncology We expect this will result in continued revenue acceleration and scientific innovation as the AML and immuno-oncology results contribute to the growth of our core TOS revenue. Looking forward, we feel confident in the bookings potential for the rest of our fiscal year. As already announced, we had a strong start to the third quarter, signing a $2 million contract and our sales pipeline representing potential opportunities, is at historically high levels. As such, we remain confident in our bookings growth for the remainder of the year and the revenue guidance for fiscal 2017 that we provided of $16 million to $18 million. Now, let me revenue the financial results we announced for our fiscal second quarter. The full 10Q will be filed on or about December 14th. Overall revenue for the quarter was $4.45 million, at the middle of the guidance range we provided. It’s worth noting that we exceeded the high end of our revenue guidance for the first quarter, which was partially attributed to revenue initially included in our second quarter revenue projection. Put another way, we’re near the high end of our revenue guidance for the first six months for our fiscal 2017. TOS revenue was a record $4 million for the quarter, an increase of 59% over the same quarter last year. The increase was due to the conversion of revenue of our strong prior period bookings, which we have been reporting the past several quarters. TOS’ gross margin was 54% for the second quarter, a 12% point improvement over last year. Gross margin continues to be a volatile line on our income statement. As our revenue continues to grow, we expect an improving gross margin as we leverage our fixed cost against a higher revenue base. However, along with the growth, at times, we expect variable cost to increase as we begin new studies before revenue is recognized, which will put short term pressure on margins. Long term however, we reiterate that we expect an overall trend of higher gross margin as we continue to operate more efficiently and search for new ways to lower our cost. TOS revenue was up again for the second quarter to $497,000, a 2% increase over last year. The increase is primarily the result of growth in sequencing and drug panel revenue, offset by a decline in implant and tumor board revenue. As with our overall operations, we are continuing to focus on lowering our costs in this business and as you can see, we have made great progress. We have reduced our costs by almost $200,000 or 34% from the prior year, while still maintaining consistent revenue levels. As a result, we posted gross margins of 25% for the quarter, and are continuing to deliver on our guidance of achieving positive gross margins in this segment. Our reporting operating expenses including R&D, sales and marketing, and G&A were $2.7 million, a decrease of $700,000 or 21% from the second quarter last year. This decrease was the result of a non-tax increase in stock based compensation of approximately $200,000 and more importantly, cash operation expenses decreases of approximately $500,000 resulting from reductions in legal and audit fees, IT costs, and other personal related expenses. This was achieved while our revenues were $1.5 million higher than the same quarter last year. As we’ve repeated, we have kept a very tight control on our expense line even as we grow our revenue base. Looking forward, we will continue to be laser focused on expense management along with uncovering additional opportunities for further baseline cost reductions. While we anticipate some marginal increase in our third quarter expenses overall, any significant increase in expenses will be directly attributable to business growth. Our non-GAAP earnings, which is operating income excluding stock-based comp was a positive $40,000 for the quarter. We have talked a lot about the goal of profitability and we are excited to have reached it a couple of quarters earlier than expected. While we expect some volatility around this metric in future quarters, this is a new baseline from which we will measure future results and set new goals. A direct result of operational profitability was reduction in our quarterly cash burn to less than $150,000. As we’ve discussed on prior calls, our cash burn is basically our operating income or loss before stock-based comp adjusted by changes in key balance sheet accounts. Capital expenditure is not a significant number. As we anticipated, our growing revenue base, along with our continued emphasis on cost containment [inaudible] significant improvement in our cash flows. We achieved these results with strong cash collections on our completed study milestones along with a reduction in our expenses. With $4.3 million of cash in the bank, we are confident that we have plenty of capital to meet our operating needs. Now, let me turn it back to Joel for some final remarks.

[Joel Ackerman:]

As I hope you all can see, we delivered another great quarter, 50% revenue growth, profitability, and a very strong cash position. I could not have asked for a better quarter on which to start my transition to chairman. With that, we’ll open things up to Q&A. [Operator Instructions] At this time, there are no questions in queue.

[Joel Ackerman:]

Great. Thank you all for your time. I hope you are excited about this quarter as we are and we look forward to updating you next quarter. Thanks everyone.

[Operator:]

This concludes this afternoon’s teleconference. You may now disconnect your lines.